City expects August CPI down
Hungary’s year-on-year headline consumer inflation is likely to have edged down in August on the back of plunging oil and food prices and a still strong forint, but renewed political risks and worries over a proposed massive tax cut package may leave their mark on asset valuations, London-based emerging markets analysts polled by Econews have said.
Surveyed prior to the release of the August CPI data, analysts at nine major City-based investment banks - Goldman Sachs, Merrill Lynch, BNP Paribas, Barclays Capital, JP Morgan, Dresdner Kleinwort, HSBC, UBS, 4Cast - ranged relatively widely in their forecasts, between 6.3% and 6.6%, averaging at 6.48% after a 6.7% year-on-year headline reading for July.
BNP Paribas said in its forecast that since Prime Minister Ferenc Gyurcsány has said he would resign if his proposed tax cut package is voted down, the statement of the liberal party (SzDSz) rejecting the plan has „raised doubts about political stability ahead.” From a purely fiscal perspective, however, no tax cuts „might actually be good news ... as they are clearly a major risk factor,” especially as they are not supposed to be financed by expenditure cuts, but a “bleaching” process in the economy. “We are rather skeptical on whether this would be possible, bearing in mind the past experience of other CEE economies.”
Nominal forint appreciation is “something the Hungarian economy badly needs to tackle its inflation problems,” but in order to allow currency strength, the budget must not deteriorate, BNP Paribas said. On the inflation outlook, BNP Paribas said that in light of an „extremely depressed consumption demand” and a stronger forint despite the recent sell-off, “we expect a further moderation of CPI readings over the next several months” after the 6.6% reading it expects for August.
In a separate forecast, Barclays Capital said that markets will follow political developments as the deadline for submitting the tax cut and budget proposals to Parliament draws closer. While the recent GDP and industrial production data highlighted Hungary’s “growth challenge,” the coming CPI will likely show that inflation “is not coming down yet.” This dilemma leaves little room for “tax cut experiments” and remains a risk for Hungarian assets, Barclays Capital said. (MTI–Econews)
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.